The Future of Reverse Mortgages: “It Will Be the Norm”

Citing past research on reverse mortgage products that has been conduced by the Boston College Center for Retirement reserach, the center finds that now, more than ever, reverse mortgages are poised to take an important place in the retirement landscape. 

With the average American woefully unprepared for funding his or her retirement years, people are going to have to use home equity to their advantage, says Alicia Munnell, director of the Center for Retirement Research at Boston College. A reverse mortgage is one viable way to do it.

“This is not a flawless area,” says Munnell. “But I am a great fan of reverse mortgages. I have been for 15 years. No, they are not right for everybody.”

A recent Consumer Financial Protection Bureau report on the reverse mortgage business raised several findings about the products including concerns about reverse mortgage counseling as well as the trend toward younger borrowers.

With regard to borrowers getting younger, Munnell says, the CFPB made the issue out to be a larger concern than it actually is.

“It doesn’t bother me,” she says. “If borrowers are taking a reverse mortgage younger in order to postpone drawing upon Social Security or to pay off their existing mortgage, both seem like legitimate goals.” 

While counseling funding has been a contested topic in recent months and years as funding for the counseling was momentarily suspended in 2011, the CFPB drew attention to the quality of counseling as well. 

“They are complex instruments and counseling needs to be done. My sense is we need to get a better understanding of who should take out a reverse mortgage. People need this kind of cushion so that if they have an adverse event, they have some capital to draw on.” 

Munnell says that for the middle of the income distribution of U.S. households, Americans must consider their home equity as part of their retirement plan, with the average having saved only about $100,000 for retirement. 

“I see a future where people in their 60s are having dinner with friends and the conversation leads to: “Where are you getting your reverse mortgage?” It will be the norm. It is going to take a while, but we will have a cohort of people entering retirement who only have $100,000 in their 401(k) plans.”

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